Third Antitrust Package

Federal Law “On the Protection of Competition” No. 135 of 26 July 2006 (the “Russian Competition Law”) has been in force for almost six years. During that time, it has been significantly amended twice by the so-called “First” and “Second Antitrust Packages”. However, further amendments are still required, and a third package of amendments to the Russian Competition Law (the “Third Antitrust Package”) has been planned for this fall. Accordingly, on September 9, 2011, the Russian Parliament approved the Third Antitrust Package in its first reading.

Philip Ptashkin

Senior Legal Consultant
KPMG in Russia and CIS

The most important amendments included in the Third Antitrust Package are as follows:

thresholds for transactions which fall under antitrust control will be increased;

new antitrust clearance requirements for the acquisition of foreign target companies or assets of a foreign company in Russia will be introduced in cases where the foreign target supplies goods to Russia in an amount exceeding RUB 1 billion (approximately USD 33.5 million) within a year preceding the date of the respective transaction;

the definition of “cartels”, and specific restrictions related to them, will be introduced into the Russian Competition Law;

intra-group agreements will be excluded from classification as competition-restrictive agreements; and

the number of criteria for determining what constitutes a “group of persons” will be reduced.

The Third Antitrust Package also contains further amendments, including those on: criminal liability for cartels; the procedures for identifying artificially high prices (in monopolies); the official warnings given by the Russian Federal Antitrust Service (the “FAS”) to legal entities; change of regulation on concerted practices and the register of entities and individuals that have been held liable for antitrust violations.

Increased Thresholds for Antitrust Clearance

The Third Antitrust Package introduces increased thresholds for mergers and takeovers. A pre-merger filing will now be required only if the aggregate book value of merging entities and their groups – exceeds RUR 7 billion (currently, RUR 3 billion), or if the aggregate turnover of such entities and their respective groups exceeds RUR 10 billion (currently RUR 6 billion). It is also worth noting that the value of any non-industrial land plots, buildings, sites and construction in progress of any kind will be ignored for the purposes of such calculation.

Non-Russian M&A Transactions Subject to Russian Antitrust Clearance

The Third Antitrust Package also introduces a clearance requirement for those transactions that will result in acquiring control over foreign target companies or assets of a foreign company in Russia where a foreign target company has supplied goods to Russia in an amount exceeding RUR 1 billion (approximately USD 33.5 million) within the calendar year immediately preceding the transaction date.

Cartels

The Third Antitrust Package introduces the definition of “cartels”. Cartels are defined as agreements between competitors which lead or may lead to the: (i) setting or maintaining of prices at a certain level; (ii) manipulation of prices during the bidding process; (iii) division of a market based on territorial criteria, sale/purchase volumes, or the assortment of available buyers/sellers; (iv) reduction/termination of the production of certain goods; and (v) refusal to deal with certain buyers/sellers. These are so-called per se prohibitions in horizontal agreements (agreements concluded between independent and, usually, competing entities).

In addition, the Third Antitrust Package also introduces two per se prohibitions for vertical agreements (usually,

sale/purchase agreements between non-competing entities), which are the: (i) maintenance of minimum resale prices; and (ii) bans on purchasers’ ability to resell competitors’ goods, unless such goods are sold under seller’s trademark or other means of identification.

Abuse of Dominant Position

The Third Antitrust Package’s provisions also indicate that the law regarding abuse of a dominant position will not undergo any dramatic changes. According to the FAS, the new focus on detecting cartels will instead result in a decrease in the number of cases regarding such abuses. Additionally, the Third Antitrust Package specifies administrative fines for entities that abuse their market power. This rule, however, will not apply to natural monopolies, which will remain subject to turnover fines. Those entities that are not natural monopolies will no longer be subject to turnover fines provided that their actions do not lead and may not lead to non-admission, restriction and elimination of competition.

For its part, criminal liability will only apply to cartels; other wrongful activities from an antitrust standpoint will not entail any criminal liability.

Intra-Group Exemption

The Third Antitrust Package also exempts activities that occur within one group of persons from operation of provisions on restrictive agreements and concerted actions. This means that the Russian Competition Law will now explicitly exclude intra-group activities from the list of restricted actions and agreements, which until this point had been a grey area of the Russian Competition Law.

Group of Persons

One of the most important amendments in the Third Antitrust Package is the new definition of a “group of persons”. Persons constitute a group if one or several criteria from the list are met. Currently, Russian Antitrust Law contains fifteen different criteria, and these criteria technically permit the formation of unlimited groups, which in turn imposes additional unnecessary limitations on business.

The Third Antitrust Package therefore decreases them to the following seven criteria: (i) a person or entity which holds more than fifty (50) percent of the voting shares in a company; (ii) a person or entity which performs the functions of the sole executive body of such entity; (iii) a person or entity which has the right to give the entity mandatory instructions; (iv) entities with collegial executive bodies and/or boards of directors that comprise more than fifty (50) percent of the same individuals as each other; (v) spouses, parents, legal guardians, children (including adopted children), brothers and sisters; (vi) entities which constitute a group with one and the same entity on any of the grounds listed in items (i-v); and (vii) persons or entities which constitute a group on grounds (i-vi) also constitute a group with another entity if such persons or entities posses more than fifty (50) percent of the voting rights in such entity.

These amendments will likely eliminate the possibility for unlimited groups of persons to be formed.

Control

Another important amendment relates to an introduction of definition of “control”, which will be defined as an ability to determine directly or indirectly the decisions of an entity by one of the following actions: (i) holding of more than fifty (50) percent of the voting shares; (ii) obtaining of a right to determine conditions of the legal entity’s business activity (for instance, on a contractual basis); and (iii) performing the functions of the legal entity’s executive body.